Stealing Thunder: A New Service Recovery Strategy To Impact Customer Loyalty and Trust
By Priyanko Guchait, PhD Associate Professor Conrad N. Hilton College of Hotel and Restaurant Management, University of Houston | July 14, 2019
In hospitality, service failures refer to service performance that falls below a customer's expectations. Since service is human-related, zero-defect service is unrealistic, and service failure is inevitable. When a service failure occurs, customers get upset and also lose trust in the organization, which consequently leads to customer defection and dissatisfaction, as well as negative word-of-mouth (WOM). Dissatisfied customers also complain privately through negative word-of-mouth to family and friends.
Dissatisfied customers are likely to share the negative experience with 8-10 people; and 13% share the incident with at least 20 people (De Tienne et al.). Moreover, the rise of electronic or "digital word-of-mouth" (DWOM) channels has greatly increased customers' opportunity to publicly express their complaints. Such negative online reviews can attract wide audiences, are perceived as credible, and play a critical role in affecting views and purchasing behaviors of customers.
Service failures can have detrimental consequences for organizations including loss of revenue, time, and reputation. Therefore, service recovery plays an important role in changing customers' attitudes and behaviors toward service providers.
Service recovery is the strategic action a service provider takes to cope with the service failure and convert a previously dissatisfied customer into a loyal customer, and it is of course beneficial for hospitality organizations in many ways. Appropriate service recovery is the key to changing customer attitudes. An effective service recovery strategy is likely to increase customer trust toward the restaurant or hotel. Organizations gain more loyalty and favorable customer ratings from successful service recovery, and effective service recoveries after a failure can have significant impact on firm performance.
An organization's ability to produce repeat purchases / repeat guests has a critical monetary significance. The cost of retaining a customer is about 20% of the cost of earning a new customer, and an increase of 5% in returning customers can produce an increase of 25% to 125% in firm profitability (Kotler et al., 2006). Moreover, effective service recoveries can attract new customers since 72% of customers share a positive experience with 6 or more people (Kulbyte, 2019).
Traditional Service Recovery Strategies